Monthly Archives: February 2018

I recently stumbled across this wonderful “decoder” for Form 1095-C — the form that you’ll receive from your employer if they provide your health insurance. You simply click on the line number and a pop-up window explains all the different codes that you might see on your copy, and what each one means. It’s a confusing form, with many options, and I think this interactive website does a great job clearing up the complexity and confusion.

Share this:

Recently I was doing some research for a couple different clients about various alternatives regarding paying for (or reimbursing) a closely-held company owner’s health insurance. I was going to write up a short blog post about the proper way to handle these, but there is one already out there written by a colleague that is so well-illustrated and to-the-point that I realized the better approach was to share it with you here.

The most important take-aways:
1) you can’t double-dip; and,
2) though the particular hoops that have to be jumped through are a) different for partnerships than for S-Corps, and b) a PITA for both, they are in fact the law and must be followed.

“The IRS is reviewing the legislation signed Feb. 9 that retroactively extended and modified numerous tax provisions covering 2017. We are assessing these significant changes in the tax law and beginning to determine next steps. The IRS will provide additional information as quickly as possible for affected taxpayers and the tax community.”

I immediately freaked out and thought, “What significant changes? For 2017? I’m already working on 2017 returns! Tell me more!”

Thankfully, I’m a member of NATP, which had sent out an email at exactly the same time, answering many of the questions I’d just asked. And unfortunately, it’s all true. Our government has decided to pass a 2017 tax extenders bill AFTER tax season has already started. AFTER the IRS has already released all their updated forms. AFTER the tax software companies have already programmed their systems. AFTER tax preparers have already completed their 2017 tax update educational coursework.

This morning President Trump signed a budget bill averting yet another government shutdown. Tucked in the Bipartisan Budget Act of 2018 are several extender provisions that expired but are now available retroactively through Dec. 31, 2017.

The most notable extenders include:

Exclusion for discharge of indebtedness on a principal residence
The provision extends the exclusion from gross income of a discharge of qualified principal residence indebtedness through 2017. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.

Premiums for mortgage insurance (PMI) deductible as mortgage interest
The provision extends the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction through 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000.

Above-the-line deduction for qualified tuition and related expenses
The provision extends the above-the-line deduction for qualified tuition and related expenses for higher education through 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Three-year depreciation for race horses 2-years-old or younger
The provision extends the 3-year recovery period for race horses to property placed in service during 2017.

Also incorporated into the bill is a series of additional provisions that will go into effect for the 2018 tax year. The following are noteworthy:

Requirement for new Form 1040SR for seniors
The provision requires that the IRS publish a simplified income tax return form, designated a Form 1040SR, for use by persons who are age 65 or older by the close of the taxable year. The form is to be as similar as possible to the Form 1040EZ. The use of Form 1040SR is not to be restricted based on the amount of taxable income to be shown on the return, or the fact that the income to be reported for the taxable year includes social security benefits, distributions from qualified retirement plans, annuities or other such deferred payment arrangements, interest and dividends, or capital gains and losses taken into account in determining adjusted net capital gain. This provision is effective for taxable years beginning after the date of enactment.

Prohibition of modifying user fee requirements for installment agreements
The provision prohibits increases in the amount of user fees charged by the IRS for installment agreements. In addition, the IRS is required to waive the fees imposed for installment agreements for taxpayers whose income falls below 250 percent of the poverty line and have agreed to make the payments by electronic means through a debit account. Further, for those taxpayers whose income falls below 250 percent of the poverty line, are unbanked, and successfully complete an installment agreement, the fee would be reimbursed at the end of the installment agreement period.

Individuals held harmless on improper levy on retirement plans
The provision allows amounts, including interest, returned to an individual from the IRS pursuant to a levy to be contributed to the IRA, or employer-sponsored plan, without regard to normal contribution limits. In addition, the IRS is required to pay interest on an amount returned. The provision is effective for levied amounts, and interest thereon, returned to individuals in taxable years beginning after December 31, 2017.

Retroactive changes like this are poor public policy and should not be expected to contribute to long run economic growth. Further, this is not a productive way to build on a tax reform bill designed to improve the tax code. Businesses and individuals have already made their decisions for 2017 and cannot go back and choose to invest differently in light of the new tax breaks—and counting on regular tax break extensions when planning ahead is no longer a sure bet. The uncertainty surrounding tax extenders is one of the most persistent features of tax policy discussions, and that should change.

However, it’s our job as tax preparers to make sure we’re looking out for our clients. So, even though the organizers we sent them don’t mention PMI or tuition deductions, let’s make sure to ask these additional questions to clients as their return prep work makes it into the office. And let’s hope the IRS and software preparers can get those lines and others back on the forms before too many more returns are filed.

Share this:

From today’s NATP e-newsletter, Guidance on Form W-4 Withholding under Tax Cuts Act:

The IRS has issued Notice 2018-14, which extends the effective period of Forms W-4 furnished to claim exemption from income tax withholding for 2017 until Feb. 28, 2018, and temporarily allows employees to claim exemption from withholding for 2018.

The notice suspends a requirement that employees must give their employers new W-4 forms within 10 days of a change of status resulting in fewer withholding allowances. However, the 2018 Form W-4 might not be released until after Feb. 15.

The IRS is currently working on revising Form W-4 to reflect the changes made by the Tax Cuts Act, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and the repeal of dependent exemptions.

The new guidance also specifies that the optional withholding rate on supplemental wage payments is 22 percent for taxable years 2018 through 2025.

I’ve had a few folks asking whether they should just keep using last year’s version of W-4, and the answer is yes!